How to Choose an ERP System for Your Online Business
As your business grows, it’s important to upgrade your technology stack. One potential solution you should consider is using an Enterprise Resource Planning System (ERP). This software can become the backbone of your business. It houses most of your critical back office processes like order fulfillment and financial reporting.
Today, the global ERP software market is projected to reach $78.40 billion by 2026 and was currently valued at $35.81 billion in 2018. More merchants are adopting ERP software for greater transparency and operational efficiency. However, there is an overwhelming number of ERP options available today. This guide walks you through why you need an ERP and how to compare the top systems available today.
What is an ERP?
An ERP helps a business run more efficiently and effectively. It’s common to confuse ERPs with accounting systems. While some of the functionality may overlap, ERPs are a more sophisticated software. Accounting software like Quickbooks and Xero cover a specific area like accounts receivable and payable, banking, financial reporting, and some revenue tracking. An ERP, on the other hand, covers accounting plus other areas mentioned above. It’s not uncommon for businesses to start with accounting software then move to an ERP or use accounting software alongside their ERP.
Who Should Have an ERP?
Any merchant with high-volume data or complicated processes can benefit from an ERP. Common signs that you’re ready for this comprehensive software include:
- Significant increase in order volume
- Delays in financial reporting
- Shipping products late or wrong due to volume
- Managing multiple suppliers
- Large or complex product catalogs
- Managing multiple B2B customer relationships
- Low employee productivity due to manual tasks
While ERP software includes “enterprise” in the name, this software is no longer just for large organizations. With cloud and mobile options, ERPs are becoming more accessible for small to mid-market size merchants. Cloud-based or SaaS ERP systems are affordable options. They provide reduced IT infrastructure costs, lower upfront investment, and pay-per-use pricing models. The modular-nature of ERPs allows users to pick and choose the capabilities they need. When you’re ready, you can add more functionality later.
Look at your operations and processes today. Where could you be more efficient? Are you cobbling together a handful of basic apps that a single system could replace?
How to Compare ERP Software
When evaluating an ERP for your retail business, there are a few key areas to consider:
When it comes to ERP, there are three deployment models:
- On-premise – On-premise ERP software is installed locally on your own hardware and servers. You’re responsible for the maintenance and management of it. On-premise systems usually have higher upfront costs and maintenance over time. Software upgrades can be very disruptive to your business.
- Cloud – Merchants access the software through any internet connection and web browser. A cloud-based ERP provider takes care of hosting, maintenance and software upgrades. These models usually include monthly payments based on usage.
- Hybrid – Since ERPs have been around for decades, on-premise software offerings are moving certain ERP components to the cloud. These are “hybrid” versions. Be sure you understand what components are and are not in the cloud and how that affects performance.
Like most industries, most modern ERP software is cloud-based. These ERPs offer better flexibility, cost structures, and anywhere, anytime accessibility.
Functionality and Flexibility
ERP software runs the gamut when it comes to functionality. There are dozens of areas and processes that an ERP can help automate for efficiency. The average company will see an ERP used by more than a third of its workforce, according to Software Path. It’s important to understand how each department will use the ERP and for what processes.
To start, identify your biggest pain points across all departments. Make sure your ERP covers those. While ERPs aren’t limitless, merchants can customize them to your specific requirements.
While an ERP might be the backbone of your business, it isn’t the only system used to run a retail or wholesale business. When evaluating systems, merchants should consider how their ERP will integrate to other systems like an eCommerce platform, 3PLs, shipping software, CRM, analytics, POS system, etc.
It’s important to understand how your ERP sends and receives data, or how it will “talk” with another system. If your system doesn’t connect easily to other systems, it will limit what processes you can automate between them.
In general, a cloud-based ERP with an open API will be easier to integrate. The “code” of your ERP system will be more accessible, making it easier to communicate data with any other system.
Ease of Use
ERPs, especially legacy ones, are notorious for their poor user-friendly design. If the ERP software isn’t intuitive or requires extensive training, this can affect your team’s productivity. Be sure the UX/UI makes it easy for your team to enter and use all the critical data stored there. The last thing you want is your team bogged down in a system that’s cumbersome to use. If it’s too hard to get actionable data from your ERP, you risk missing out on important insights. Don’t overlook the learning curve it’ll take to get your team up and running in the system. This can correlate directly to how much value you can derive from the system.
Total Cost of Ownership
As mentioned above, ERPs can be quite costly. When looking at solutions, be prepared to consider costs like:
- For on-premise: licensing fees, hardware or servers for hosting, IT team to maintain infrastructure, implementation costs
- For cloud-based: monthly subscription fee and what they’re tiered on, implementation costs
- Data volume fee structures
- Integration into third-party applications
- Fees to ERP consultant or service provider for implementation and customization
With an ERP housing most of your everyday processes, it can be detrimental when something goes wrong. If you’re running an online flash sale and your ERP starts dropping orders on the floor for various reasons, it’s a big problem. It’s vital to understand who you can call when something goes wrong and what the support process looks like.
Consider the community built around the ERP. Are there ample number of consultants, developers, or resellers you can count on to help you install and maintain your ERP? Is there a large knowledge base or user resources you can turn to? If you choose a lesser known ERP, you might have a hard time finding support when you really need it.
Choosing the best ERP software comes down to understanding what of your core processes need automated. From there, you can vet the numerous ERP options available by the criteria above and your allotted budget.